A Simple Example Of How Chinese Wage Inflation Can Hit American Consumers

Concerns over inflation are rising, and while the discussion has been largely limited to the increase in commodity prices, particularly oil, there are other sources which could soon drive prices higher in developed markets.

One is the threat of increasing prices from labour in China. This weekend’s Financial Times provides a simple anecdote of how this is already happening.

A representative of a firm manufacturing light bulbs went to the Guangxi region of China and offered workers wages of 1,600 RMB ($245) per month. He was expecting to hire 500 people at that price. Only 10 accepted jobs, according to the FT.

Workers in China, battling an increase in prices there, are demanding higher pay. Eventually, those costs get passed on to the end consumer, and with Chinese goods being exported everywhere around the world, these costs end up affecting everyone.

This example adds to comments made by Wal-Mart CEO Bill Simon who said “serious inflation” was on the horizon for U.S. consumers. Goods sourcers for major U.S. retailers have already warned of this emerging threat to prices.

Beyond emanating from higher oil prices, which increase the cost of transporting everything to the end buyer, the increase in wages in emerging markets that produce much of what Western buyers now consume is also key to the emerging inflation story.